Can the government veto Network Rail bonuses?

“If we look at the Articles of Association of Network Rail, we see that the government can appoint someone to the remuneration committee and has to give prior consent before a change in the incentive arrangements. Now that’s a powerful position, it amounts to a veto if the Secretary of State would choose to use it.”

Maria Eagle MP, Shadow Transport Secretary, BBC News, 6 February 2012

Cathy Newman checks it out

Charles Dickens would be turning in his Poet’s Corner grave. As every English scholar knows, the first line of Hard Times reads “Now, what I want is, Facts”.

But on the 200th anniversary of the great novelist’s birth, the row over bonuses is dominated by a lot of hot air, and very little hard information.

Take Network Rail, for example. Bosses there have announced they won’t accept their bonuses – but not before the mother of all ding dongs between the transport secretary and her Labour nemesis about whether or not the government had any power over their remuneration.

Now, in respectful homage to Dickens and the man of fact and calculations himself, Thomas Gradgrind, FactCheck has unearthed an interesting document which casts light on this dispute.

The analysis

Network Rail bosses bowed to public pressure earlier this week, giving up potential annual bonuses totalling more than £1m. The decision to forego their bonuses came ahead of a company meeting slated for Friday at which bonuses were due to be discussed and at which the Transport Secretary Justine Greening promised to vote against the bonus plan.

What’s it got to do with the public?

Network Rail is legally a private company but it depends on £4bn of the taxpayers’ money every year and has all its debts guaranteed by the government.

Its Board is held accountable not by shareholders, but by public members who have no financial or economic interest in the company. There are currently 78 public members, drawn from the public or the industry, one of which is the Transport Secretary.

Shadow Transport Minister Maria Eagle has accused Justine Greening of having “more influence than she’s letting on”. Pointing to the Articles of Association – essentially a rule book for the running of Network Rail – Ms Eagle insisted the Secretary has the power of veto. Is she right?

Special Membership

As a Member of Network Rail, the Secretary is not much different from the other members – in that she has an advisory vote on company bonuses set by Network Rail’s Remuneration Committee. Members do not have the power to veto the Board.

The Transport Secretary however has ‘special membership rights’ under which she can’t be booted out, she can call a general meeting, she can veto changes to National Rail’s constitution and she can veto changes to the Remuneration Committee membership.

So far however, no power to veto bonuses. But Ms Eagle flagged up the Articles. Now, boring but important – it all comes down to two documents within the Articles: the Incentive Policy and the Management Incentive Plan.

The Policy lays out the principle that a portion of the directors’ remuneration should be in the form of performance linked bonuses. To change this principle, Network Rail would need Department for Transport’s (DfT) consent.

Meanwhile, the Plan sets out the finer detail of directors’ bonuses – how much they are paid, what percentage of their salary and so on. Over this, the DfT has no power of veto. And it was the Plan that Network Rail’s members were due to vote on, on Friday – therefore neither the DfT nor the Secretary would have been able to intervene with any real power. Ms Greening’s vote would only have been advisory, as with all the other members.

Taxpayers’ interests

In fact, if the DfT did have the power to veto any changes to the Plan, it would render Network Rail a public company rather than a private company.

This can be proved by a document unearthed by FactCheck in which the Office for National Statistics (ONS) classed the company as a non-financial private sector company in 2004.

This document, the ONS’s National Accounts Sector Classification of Network Rail, shows that the taxpayer might have had some input into Network Rail’s bonus deals under original drafts of the Articles. But the final version of the Incentive Policy ruled out any clauses which gave the publicly funded Strategic Rail Authority (SRA) powers and influence that “amounted to control”.

The final version of the policy instead appointed an independent expert assessor – the Office of Rail Regulation – to check whether the Management Incentive Plan was consistent with the Incentive Policy.

Ultimately, this means that Network Rail could not be classified as a private company if the government was found to have any power to influence bonuses.

So under the Articles, the Secretary of State has no power to veto bonuses.

What else?

However, it’s worth us pointing out that as a Special Member of Network Rail Ms Greening has the power to appoint a special non-executive director to represent the views of taxpayers on the Board. Ms Greening has only just announced her intention to do appoint a non-exec, and FactCheck understands that this person will also be able to sit on the Remuneration Committee.

The idea that this special non-exec would have no influence over the other four Committee members – when they represent £4bn in public funding – seems a bit far fetched.

Cathy Newman’s verdict

You would have thought, given that we’re all bank-rolling Network Rail to the tune of £4bn a year, that we might be able to block big bonuses.

But it seems the government, on behalf of the taxpayer, can’t wield a veto. That sai, ministers do have rather more influence than they’ve let on.

That’s the hard fact: Gradgrind eat your heart out. However, that won’t stop MPs grand-standing and jumping on various passing bandwagons, as this afternoon’s opposition day debate on bonuses has shown.

As the Labour Party created these contracts in the first place, their sudden conversion to an anti-bonus culture rings a bit hollow to me.

The whole opposition policy at the moment seems to be based on either blaming the government for not fixing problems they created, or blaming the government for not persisting with policies that got us into this mess.

It might (possibly) convince their die hard supporters, but to the rest of us it’s would be laughable – if we weren’t paying the price of their failure.

Network Rail [or today’s banks for that matter] a “private company”! Can this be said out loud with a straight face AND a clear conscience? Anyone, average novelist or otherwise, can see it’s nothing of the sort – the great novelist would no doubt have us all laughing at the hideousness of the people who would perpetuate this post Thatcher myth…..